| Title : | Determinants of capital adequacy ratio in Nepalese context: a comparative study of public banks,joint venture banks and private banks | | Material Type: | printed text | | Authors: | Sujata Adhikari, Author | | Publication Date: | 2017 | | Pagination: | 91p. | | Size: | GRP/Thesis | | Accompanying material: | 8/B | | Languages : | English | | Descriptors: | Bank capital
| | Class number: | 332.1206 | | Abstract: | Capital adequacy ratio is a major financing decision for the effective and smooth operations of the financial system of the country. Every bank should have to maintain its capital adequacy ratio to handle losses and fulfill its obligations to account holders without ceasing. It is used to protect depositors and promote the stability and efficiency of financial systems around the world. Therefore, regulatory authorities used capital adequacy ratio as a significant indicator of “safety and stability” for banks and depository institutions because they view capital as a guard or cushion for absorbing losses. Banks must maintain a capital adequacy at specific minimum level in order to avoid risks and bankruptcy.
There are differences in public sector banks, joint venture banks and domestic private banks in terms of capital adequacy, core capital, return on equity, nonperforming loan, total loan, bank size and deposit. Matthew & Esther (2012) revealed foreign banks have more capital adequacy and bank size than domestic banks. Francis (2007) revealed that capital adequacy has positive effect on return on assets and return on equity. However, total assets and total loan were negatively and significantly related to capital adequacy ratio.Martynova (2015) argued the effect of higher capital requirements on economic growth will lead current level of capital ratio low.
The major objective of the study is to examine the determinants of capital adequacy ratio of the Nepalese commercial banks. The study is based on secondary data of 20 commercial banks with 140 observations for the period of 2008/09 to 2014/15. The main source of data include various issues of Banking and Financial Statistics, Quarterly Economic Bulletin, Bank Supervision Report published by Nepal Rastra Bank and Annual Reports of selected commercial banks. The pooled cross sectional data analysis has been undertaken in the study. The research design adopted in this study is descriptive and causal comparative research design as it deals with the determinants of capital adequacy ratio of Nepalese commercial banks.
The result shows that LBL has the highest average CAR, and LBL has the highest average TC among the selected commercial banks throughout the study period. Similarly, the average return on assets is highest for NCCB (5.52 percent), average return on equity is highest for NABIL (28.53 times), average nonperforming loan is highest for ADB (7.53 times), average total loan is highest for ADB (50.41 rupees in billions), average total deposit is highest NABIL (61.67 rupees in billions) and average total assets is highest for ADB (71.47 rupees in billions.
The descriptive statistics for the public banks reveals that the average capital adequacy ratio, core capital ratio, return on assets, return on equity, nonperforming loan, total loan, total deposit, total assets, economic growth and inflation rate is -1.71 percent, 4.50 percent, 2.04 percent, 3.03 percent, 6.30 times, 39.45 rupees in billions, 53.14 rupees in billions, 67.09 rupees in billions, 10.17 percent and 4.22 percent respectively. Similarly, the descriptive statistics for the joint venture banks reveals that the average capital adequacy ratio, core capital ratio, return on assets, return on equity, nonperforming loan, total loan, total deposit, total assets, economic growth and inflation rate is 0.12 percent, 9.88 percent, 2.49 percent, 23.58 percent, 2.37 times, 30.24 rupees in billions, 44.49 rupees in billions, 51.18 rupees in billions, 0.10 percent and 0.04 percent respectively. Likewise, the descriptive statistics for the private bank reveals that the average capital adequacy ratio, core capital ratio, return on assets, return on equity, nonperforming loan, total loan, total deposit, total assets, economic growth and inflation rate is 0.13 percent, 11.37 percent, 1.71 percent, 14.04 percent, 1.75 times, 20.12 rupees in billions, 25.03 rupees in billions, 39.93 rupees in billions, 0.11 percent and 0.05 percent respectively.
In the case of public banks, the study found that inflation and economic growth have negative relationship with capital adequacy ratio and core capital ratio. Results also show that return on assets, nonperforming loan, total loan, total assets and total deposits are positively related to the capital adequacy ratio and core capital ratio. Similarly, in the case of joint venture banks, return on assets, nonperforming loan, total loan, economic growth and inflation are negatively related to capital adequacy ratio and core capital ratio. On the other hand, results also show that total deposit and total assets are positively correlated to the capital adequacy ratio. The results show that return on equity, total assets and economic growth are negatively related to the capital adequacy ratio of private banks. However, results show that return on assets, nonperforming loan and inflation have positive relationship with capital adequacy ratio of the private banks.
The regression results show that return on assets, nonperforming loan, total deposit and inflation have positive impact on capital adequacy ratio in the case of public banks. However, results show that total deposit has negative and significant impact on capital adequacy ratio and core capital ratio of private banks. Likewise, results show that beta coefficients are positive and significant for total assets for public and private banks whereas beta coefficients are negative in the context of joint venture banks.However, coefficients are not significant. Likewise, the results in the case of joint venture banks show that beta coefficients are negative for return on assets and nonperforming loan, where beta coefficients are significant at 5 percent level of significance. Thus, nonperforming loan, return on assets, return on equity, total assets, total deposit and inflation are the major factors affecting the capital adequacy ratio of Nepalese commercial banks.
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Determinants of capital adequacy ratio in Nepalese context: a comparative study of public banks,joint venture banks and private banks [printed text] / Sujata Adhikari, Author . - 2017 . - 91p. ; GRP/Thesis + 8/B. Languages : English | Descriptors: | Bank capital
| | Class number: | 332.1206 | | Abstract: | Capital adequacy ratio is a major financing decision for the effective and smooth operations of the financial system of the country. Every bank should have to maintain its capital adequacy ratio to handle losses and fulfill its obligations to account holders without ceasing. It is used to protect depositors and promote the stability and efficiency of financial systems around the world. Therefore, regulatory authorities used capital adequacy ratio as a significant indicator of “safety and stability” for banks and depository institutions because they view capital as a guard or cushion for absorbing losses. Banks must maintain a capital adequacy at specific minimum level in order to avoid risks and bankruptcy.
There are differences in public sector banks, joint venture banks and domestic private banks in terms of capital adequacy, core capital, return on equity, nonperforming loan, total loan, bank size and deposit. Matthew & Esther (2012) revealed foreign banks have more capital adequacy and bank size than domestic banks. Francis (2007) revealed that capital adequacy has positive effect on return on assets and return on equity. However, total assets and total loan were negatively and significantly related to capital adequacy ratio.Martynova (2015) argued the effect of higher capital requirements on economic growth will lead current level of capital ratio low.
The major objective of the study is to examine the determinants of capital adequacy ratio of the Nepalese commercial banks. The study is based on secondary data of 20 commercial banks with 140 observations for the period of 2008/09 to 2014/15. The main source of data include various issues of Banking and Financial Statistics, Quarterly Economic Bulletin, Bank Supervision Report published by Nepal Rastra Bank and Annual Reports of selected commercial banks. The pooled cross sectional data analysis has been undertaken in the study. The research design adopted in this study is descriptive and causal comparative research design as it deals with the determinants of capital adequacy ratio of Nepalese commercial banks.
The result shows that LBL has the highest average CAR, and LBL has the highest average TC among the selected commercial banks throughout the study period. Similarly, the average return on assets is highest for NCCB (5.52 percent), average return on equity is highest for NABIL (28.53 times), average nonperforming loan is highest for ADB (7.53 times), average total loan is highest for ADB (50.41 rupees in billions), average total deposit is highest NABIL (61.67 rupees in billions) and average total assets is highest for ADB (71.47 rupees in billions.
The descriptive statistics for the public banks reveals that the average capital adequacy ratio, core capital ratio, return on assets, return on equity, nonperforming loan, total loan, total deposit, total assets, economic growth and inflation rate is -1.71 percent, 4.50 percent, 2.04 percent, 3.03 percent, 6.30 times, 39.45 rupees in billions, 53.14 rupees in billions, 67.09 rupees in billions, 10.17 percent and 4.22 percent respectively. Similarly, the descriptive statistics for the joint venture banks reveals that the average capital adequacy ratio, core capital ratio, return on assets, return on equity, nonperforming loan, total loan, total deposit, total assets, economic growth and inflation rate is 0.12 percent, 9.88 percent, 2.49 percent, 23.58 percent, 2.37 times, 30.24 rupees in billions, 44.49 rupees in billions, 51.18 rupees in billions, 0.10 percent and 0.04 percent respectively. Likewise, the descriptive statistics for the private bank reveals that the average capital adequacy ratio, core capital ratio, return on assets, return on equity, nonperforming loan, total loan, total deposit, total assets, economic growth and inflation rate is 0.13 percent, 11.37 percent, 1.71 percent, 14.04 percent, 1.75 times, 20.12 rupees in billions, 25.03 rupees in billions, 39.93 rupees in billions, 0.11 percent and 0.05 percent respectively.
In the case of public banks, the study found that inflation and economic growth have negative relationship with capital adequacy ratio and core capital ratio. Results also show that return on assets, nonperforming loan, total loan, total assets and total deposits are positively related to the capital adequacy ratio and core capital ratio. Similarly, in the case of joint venture banks, return on assets, nonperforming loan, total loan, economic growth and inflation are negatively related to capital adequacy ratio and core capital ratio. On the other hand, results also show that total deposit and total assets are positively correlated to the capital adequacy ratio. The results show that return on equity, total assets and economic growth are negatively related to the capital adequacy ratio of private banks. However, results show that return on assets, nonperforming loan and inflation have positive relationship with capital adequacy ratio of the private banks.
The regression results show that return on assets, nonperforming loan, total deposit and inflation have positive impact on capital adequacy ratio in the case of public banks. However, results show that total deposit has negative and significant impact on capital adequacy ratio and core capital ratio of private banks. Likewise, results show that beta coefficients are positive and significant for total assets for public and private banks whereas beta coefficients are negative in the context of joint venture banks.However, coefficients are not significant. Likewise, the results in the case of joint venture banks show that beta coefficients are negative for return on assets and nonperforming loan, where beta coefficients are significant at 5 percent level of significance. Thus, nonperforming loan, return on assets, return on equity, total assets, total deposit and inflation are the major factors affecting the capital adequacy ratio of Nepalese commercial banks.
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